Business Law 101 / Shipping Has A Language Of It’s Own

By Albert L. Kelley

When you buy something in a store, that is referred to as the point of sale or point of purchase. Rarely in business do business owners go to a store to buy the merchandise they are going to sell- they order it to be shipped.

In business, shipping is a major issue and has a language all its own. In the process from manufacturing to final customer sale, there may be many shipping steps. The manufacturer will buy raw material to make the goods. These will be bought and shipped to the manufacturing plant. Once manufactured, the product may be shipped to a middleman who then ships it to the retail store, who may then ship it to the final customer. This is a common business practice.

But who is responsible if there is damage during shipping? Who is responsible for the costs of shipping?

When a business needs something delivered, they enter into a shipping contract. The contract spells out certain details, such as where the delivery is to be made, who has responsibility for it, at what point responsibility ends and at what point title transfers. Because this is such an important aspect of business, terms have been developed that answer this in a shorthand method.

First we have a CIF contract. CIF stands for “cost, insurance and freight.” In these contracts, the buyer pays the seller for the cost of the goods, shipping and insurance against any damage. The seller is then obligated to provide insurance to protect the buyer from loss and deliver the goods to the shipping company for delivery to the buyer. The title to the goods transfers when they are placed with the shipper. The insurance protects the buyer until final delivery.

Next is the CF contract, which stands for “costs and freight.” Here, there is no requirement for the seller to obtain insurance and the buyer takes the risk of loss. The buyer may buy insurance on his own. The seller is only liable until the goods are delivered to the shipping company. Again, the title passes when the goods are delivered to the shipper.

Next is the Free on Board contract. An FOB contract must state a location where liability shifts. The seller takes the risk of loss until the item reaches that location, and the buyer takes liability after that. An FOB contract may be “FOB (Place of shipment),” where the seller needs only deliver the goods to a shipper, or it may be “FOB (Place of delivery),” where the seller must deliver the goods to the final destination. For example, if I order an item “FOB the Law Office of Albert Kelley,” the seller must guarantee that I receive the item at my office. If I order an item “FOB Miami,” I have to make separate arrangements to have the item shipped from Miami to Key West. The seller’s risk ends once the item makes it to Miami.

The next contract is called Free Along Side. This is a true shipping contract as it only applies to vessels and ports. The seller must pay for the item to be delivered to a ship. Once delivered, the buyer takes the responsibility and risk. If the buyer wants more security that the item will reach a closer port, they may ask for an “Ex-ship contract,” under which the seller’s liability does not end until the item is delivered off the ship at its port of destination.

Al Kelley is a Florida business law attorney located in Key West and previously taught business law, personnel law and labor law at St. Leo University. He is also the author of “Basics of Business Law” and “Basics of Florida’s Small Claims Court” (Absolutely Amazing e-Books). This article is being offered as a public service and is not intended to provide specific legal advice. If you have any questions about legal issues, you should confer with a licensed Florida attorney.

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